Afridigest Week in Review: Newcomer Nigerian neobank nabs double nickels

+Marketplace disruptive power & operating leverage +New YC companies +India Tech's moment +Asia-Africa corridor +DCFs for startups +Bridge to Japan +Nigeria's mobile wallet market +Fintech frenzy

The Afridigest Week in Review is a must-read weekly recap for Africa-focused founders, executives, and investors, as well as interested observers.

Welcome back! Since last week’s digest, I published an investor profile with AAIC’s Nobuhiko Ichiyama. Based on your feedback, we’ll be featuring more insights from practitioners going forward, both in interview format as well as the previous Thought Circle format — so some of you may receive a mail from me. Thanks in advance for your participation.
🙏 Thanks also in advance for sharing today’s digest — a lot of effort went into this one.
If you’re new, welcome 🙌 — you’ll (generally) receive 2 weekly Afridigest emails: the weekly digest (every Monday) and an original essay/article (generally on Saturdays). For past essays and digests, visit the archive.

Week 31 2021

📰 Deal of the week
NEOBANKS FOR THE NEXT BILLION

Kuda, the Nigerian digital bank, raised a $55M Series B at a $500M valuation. Valar Ventures (the firm co-founded and supported by Peter Thiel) and Target Global co-led the round, with SBI and others participating.

Founded in 2018, Kuda offers digital bank accounts, airtime purchases, bill pay services, and short-term overdraft lending facilities; with this round, which comes less than five months after its $25M Series A in March, its total fundraising haul exceeds $90M.

💡 Why it’s the deal of the week: For the last several months, Kuda’s presence across Nigeria has been unavoidable. From billboards to radio to digital ads, Kuda has been on a fierce marketing blitz and it seems to be paying off. Kuda now has 1.4M users, up more than 2x from ~650K just four months ago. (While these are registered users, not actives, it’s nonetheless impressive growth.)

⛏️ Go deeper:

  • Overvalued? Across the ecosystem, there are unverified rumors that Kuda lost ~$3M on ~$160K revenue in Q1, causing a bit of consternation in some corners. After all, at a $500M valuation, Kuda now stands shoulder to shoulder with (or even surpasses) several of Nigeria’s traditional banks, some of whom have made notable strides in their digital offerings while generating strong profits — Access Bank for example has ~19M digital customers, First Bank ~14M, and GTBank, UBA, and Zenith ~5-7M. Ultimately, however, valuation is based on beliefs about the future, and it’s clear that Valar Ventures & Target Global (who, between them, have led Kuda’s Seed, Series A, and Series B rounds) are quite pleased with Kuda’s execution so far and hold strong convictions about its long-term prospects as the next generation’s neobank of choice.

  • Use of funds: Currently operational in Nigeria only, Kuda has ambitions to be the digital bank for “every African on the planet.” With the fundraise, Kuda will continue its focus on growth in Nigeria while undertaking expansion both across the African continent and to markets that are home to large concentrations of the African diaspora like the UK.

  • A harbinger of what’s to come: "Our first investment in Kuda last year really opened our eyes to the new wave of digital companies emerging across Africa. There's a number of fantastic companies solving real pain points and addressing huge markets. It's hard to predict the future, but I think we'll see a similar inflection of successful startups in Africa that we saw in places like India and China 20 years ago." — Ricardo Schäfer, Partner, Target Global

  • In the CEO’s words: “[Post-COVID], technology has facilitated everyday life and financial services are really plugged into that; I think we’ve been quite fortunate to have been able to take advantage of that. Growth has been pretty good, it’s been rapid, and there was an opportunity for our existing investors to increase their stake a little bit in the company and it made sense for both parties; that’s how we’re at this point with the Series B round….If you look at it in terms of the scale of the opportunity of what we’re trying to tackle, then really maybe the total funding today might be considered quite conservative in some quarters.

    Watch CNBC Africa’s post-fundraise interview with Kuda Co-Founder & CEO Babs Ogundeyi here.


🔦 Other deals
OTHER DEALS
ADDITIONS TO Y COMBINATOR’S S21 BATCH
  • Four additional African startups were selected into Y Combinator’s S21 batch; they join the nine previously featured in Week 27’s Digest—each will receive $125K in seed funding

    • Nigeria: Payhippo, an SME financing platform; Infiuss Health, a SaaS platform connecting US- & EU-based researchers to clinical trial participants in Africa

    • Ghana: Yemaachi Biotechnology, a non-invasive, precision cancer diagnostics platform

    • Zambia: Union54, Africa’s first debit card-issuing API — it’s the first Zambian startup to get into YC, and this comes almost exactly one year after Union54 was first announced publicly. (Congrats!)


🌏 Asia Read of the Week
A GLIMPSE OF THE FUTURE

India has so far minted 20 unicorns in 2021, up almost 100% from the 11 minted the whole of last year. Here’s a detailed exploration of how India’s startup ecosystem evolved from India’s independence in 1958 to today.

“…Soon after the initial rush, VCs figured out even though it was lucrative, the depth of the market was not comparable to that in the US (or China)…[Fast forward to today] we are in the midst of a blockbuster year…Indian startups raised a total of $22.6B just in the first 7 months of the year…2021 onwards is the inflexion point for new-age Indian technology startups.”

💡 “Has India Tech’s golden decade arrived?” by Bhoomika Ojha, Keshav Bagri, Raj Nayan Datta, Shreyans Nahar, and Aviral Bhatnagar

Pair this with: Venture capital firms turn to India with China’s tech crackdown


📚 Reads of the Week
NON-PARTICIPANTS = NON-CONSUMERS

NFX’s James Currier and HBS’ Scott Kominers write about non-participants & disruptive innovation in the context of marketplaces. Strong parallels here to the framework of non-consumption & market-creating innovation that Efosa Ojomo champions.

“Here’s what ‘existing transactions’ marketplaces don’t do: They don’t bring in new consumers who would never have been able to participate in these transactions before… This requires disruptive marketplaces, which expand market participation by creating new types of transactions altogether. It’s about enabling participation among non-participants.”

🥇 “Unlocking “disruptive power” for your marketplace” by James Currier and Scott Kominers

Pair this with: ‘Cracking frontier marketsby Clayton Christensen, Efosa Ojomo, and Karen Dillon

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NOT ALL MARKETPLACES ARE EQUAL

Lightspeed’s Alex Taussig sheds light on the differences between product and service marketplaces when it comes to operating leverage, then explores which sources of operating leverage should be prioritized by marketplace type.

“Why does operating leverage matter? Because high leverage businesses show faster operating profit growth per dollar of additional revenue. Operating leverage is akin to the mechanical advantage you get from a physical lever. In a high leverage business, you push down with a little more revenue and you get a lot of profit on the other side.”

Operating leverage” by Alex Taussig
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INSIGHTS FROM PRACTITIONERS

An interview with Nobuhiko Ichiyama, AAIC’s Director in Nigeria, about the investment environment across Africa, the drivers of Japanese interest in African startups, the impact of COVID-19 on the continent’s health-techs, and more.

West Africa: Nigeria is giant and dynamic. We see a lot of mega-deals, especially in the fintech sector. Big-visioned and aggressive (in a good way) entrepreneurs attract global investors. The competition (both for startups and investors) is getting intense.”

Investor Profile: AAIC - The Bridge to Japan” — an interview with AAIC’s Nobuhiko Ichiyama


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📚 Quick Hits
FOR YOUR READING PLEASURE

🙈 Visual of the week
“DIGITAL WALLETS ARE GOING TO USURP A LOT OF THE ROLE BANKS PLAY TODAY” — ARK'S CATHIE WOOD

Mobile wallets overtook credit cards in 2019 and are now the most widely used payment type globally. Here’s a snapshot of the Nigerian mobile market today, from Boku’s 2021 Mobile Wallet report.


🕵️‍♀️ In case you missed it
NEWS & ANNOUNCEMENTS
PERSONNEL MOVES
ESSAYS
  • Dr. Ikpeme Neto, Founder/CEO at Wella Health, highlights the fact that fintech’s ongoing success in Nigeria is driven by earlier invested infrastructure, but similar underlying infrastructure is yet to be built in the country’s healthcare sector in What Nigerian Healthtech Startups can Learn from Fintech's Success
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    “My advice to almost every founder working in health tech in Nigeria is to recognize that we’re still in the early days… As a result, the vast majority of us should be more like fintech 1.0 and be more infrastructure-focused.”

  • Emmanuel Adegboye, Managing Partner of urban innovation group Utopia Lagos, writes about the regulatory challenges Nigerian innovators face in ‘Postcard from Lagos: Take the brake off start-ups
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    “What a strange time to be a young innovator in Nigeria. One day, you can be celebrating a billion-dollar valuation as a start-up, the next worrying whether a new government policy decision will wipe these gains out overnight.”

OTHER ARTICLES — EVERYONE'S TALKING FINTECH

🗣️ A final word
CRUISE CONTROL

Happy Monday. How about a nice ride with the radio on to start the week?


LA FIN

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